'Social cleansing has been going on for a while; it’s just got more visible under this government' … Camila Batmanghelidjh. Photograph: Sam Frost

How on earth can Camila Batmanghelidjh be so relentlessly cheerful? Few people can have witnessed so much human misery. Here's a small sample of the 36,000 children who come to one of the centres she founded, seeking help: the girl who was repeatedly raped by her father as a child, and then used by up to 20 men a day when a pimp forced her into prostitution as a 12-year-old. Children who remember physical abuse so bad they were hospitalised as toddlers. The children who still sleep on layers of cardboard instead of a mattress, their bedsheets unwashed for months, if ever. The flats and houses she has been to see, littered with sanitary towels and condoms and needles and dog faeces. The young people who don't even own underwear, let alone a winter coat. The children who turn up hungry.

Last month, Kids Company opened another centre in Bristol, its first outside London, which is why we're sitting in a hotel where Batmanghelidjh has just addressed a room full of new colleagues. "I came up to meet some of the children and I cried for two and half hours on my way back to London," she says. "The group I saw here are devastatingly vulnerable. I met this boy, he's living in a flat on his own, he's 22, a care-leaver, and he doesn't know how to connect the electricity or the gas, so he's been living in the dark for two years. He had three layers of clothes on."

To describe Batmanghelidjh as a force of nature seems a bit inadequate. When she was born, prematurely and weighing little over 2lb, the doctors didn't bother putting her in an incubator, instead sending her home with her parents to die. This left her with learning disabilities (she has severe dyslexia), and physical limitations – her size is a result of an endocrine disorder, though the upshot is that hers is a solid, reassuring presence. She puts me in mind of a great, hulking icebreaker, powering through seemingly insurmountable obstacles. Last week, Batmanghelidjh appeared on the BBC Woman's Hour list of the 100 most powerful women in the UK, but she insists she doesn't think, personally, she has power. "I'm a custodian of other people's power. All I've done is galvanise the 600 staff, the 11,000 volunteers, the thousands of supporters, the companies who volunteer with us and communities who come together around these kids." Hard to tell if she's being disingenuous: few campaigners have her profile, influence with politicians, or media skills. She also has a flair for the dramatic – in 2007, for instance, in a clamorous media campaign, she announced she would be closing down the charity unless the government helped with funding (a few months later, she got it).

Essentially, what Kids Company does is parent abused and neglected children who are not parented elsewhere. Open seven days a week from 8am to 10pm (with an out-of-hours emergency phone line), it literally feeds, clothes and shelters them. After that, a huge range of services swings into action – anything from volunteers going into a child's house to make repairs, giving excluded children one-on-one education, rehousing homeless young people and getting access to statutory support. For many of the children, it is their first experience of being nurtured and listened to. What underpins it all is Batmanghelidjh's overarching philosophy, which can be found in one of the charity's mottos: "children recover with unrelenting love".

That sounds woolly, but Batmanghelidjh insists it is a pragmatic solution. Around 97% of the young people who come to the charity are self-referring; around 81% are involved in crime; 84% have experienced homelessness; 83% have sustained childhood trauma. After Kids Company intervention, findings include a 90% reduction in criminal activity, 91% go back into education, and 69% find employment.

It's this that keeps her going, she says, when I ask how she maintains that cheerfulness. "The children move me deeply. When I sit down and talk to a child, that is my primary love. I love the kids, I love my workforce. I love the genuine philanthropists. I tolerate the narcissistic philanthropists." She laughs. "I see human misery every day, but I also see extraordinary courage and kindness. That keeps me cheerful."

Ask her about the cuts and she sighs. Kids Company's government grant is about to end, and she doesn't know where the money will come from after March; she sees the effects elsewhere, too. "We used to have about 30 new children turn up at one of our street-level centres a week; now it's between 70 and 90 and they're asking for food. We're having to issue food vouchers and put together food bags for families." Of the parents she supports who work (only around 16% of them are in work, or have worked), many have admitted they are shoplifting for food. "The other impact I'm seeing is housing. It's difficult to find accommodation for young people because landlords are nervous, they're having problems with housing benefit. We're going to have a crisis in housing. And you see all the little agencies that do a little bit of helping – the local church, the small charity – they have shut their services down. How it's going to pan out … " She takes a rare pause. "If I had advice to give anyone, I'd really watch this corner. The risk is these neighbourhoods will implode with frustration. When you've got one million unemployed young people, and they don't have anywhere to go all day, you're being a bit silly. You should at least open up reception rooms where they can come and have meals, access to the internet, there is someone chatting to them. Otherwise they all gather in perverse spaces that are not being counteracted by healthy adults. And a collection of these perverse moments leads to a bust-up. Because politicians don't see, they think it doesn't exist."

Kids Company has a drop-in service in Camden, north London, where the council is planning to move poor families out of the borough because the coalition's benefit cap will make paying for housing impossible. "Social cleansing has been going on for a while," says Batmanghelidjh, who tells a shocking story about why she believes Kids Company was evicted from its original home (according to her, it essentially boiled down to "too many black boys"), "it's just that it's got more visible under this government. But it is outrageous, the derogatory attitude towards the poor. It's morally corrupt."

It isn't only privileged, privately educated cabinet members who are out of touch: "I think the type of person who ends up advising politicians, on the whole, is not a person who has emerged from the street. And because of that, what's missing is the fine detail of day-to-day living. For example – we say there are children who need free school meals, and we provide them; then suddenly it's the summer holidays and there are no meals for six weeks. It's that blind thoughtlessness that causes problems."

But it's not just thoughtlessness. She says one "very, very, very high up" politician – "and I'm not telling you who" – privately admitted to her, "'We know children's social services is not fit for purpose but none of us want to go near it'. The general public don't know that there are more than 1.5 million children being harmed in this country. They don't know that 650,000 are referred to child protection and only 49,000 end up on the register. The politicians are perfectly happy for the public not to know, because it's not something they want to deal with. So Michael Gove talks about attainment, but he doesn't describe what he's going to do for children who are being chronically harmed. No one is going there."

On top of that, senior professionals in children's services tell Batmanghelidjh they often hide the truth about how bad the situation is from central government "because they fear that their agencies will be perceived as doing a bad job, they're worried about losing their promotions, or about making local councillors look like they're failing. At the same time, a lot of them feel guilty about it. Then suddenly you get a scandal, like Baby Peter, and everyone panics."

In 2010, Batmanghelidjh was brought in to support David Cameron's Big Society, but she is disheartened at how hollow that looks now. "I still believe that big society, given the right drivers, could deliver good, but it doesn't have the leadership at the moment, and I don't know whether they were clear about what they wanted to deliver."

As a child, Batmanghelidjh would sneak food out of herhome in Tehran and leave it on poor people's doorsteps; aged nine, she announced she was going to found an orphanage; by 14, she had written the business plan for Kids Company. She was influenced by her grandfathers – one a paediatrician dedicated to healing the poor children in his neighbourhood; the other an entrepreneur who was a multimillionaire at 21. She remembers her grandfather and uncles sitting around the table at lunchtime, "and they would say, 'let's build the biggest ski resort in the world,' and within a month they'd started. So I had this model of people who made decisions and started on them. There was no barrier."

Batmanghelidjh was 12 when she was sent to a boarding school, Sherborne, in England, barely speaking English, and 14 when the Iranian revolution began. Her father was arrested and imprisoned; every so often she would receive reports that he had been executed. A bank manager managed to get into her father's bank accounts so her school fees could continue to be paid, and the school helped her claim asylum. That year, her older sister, who was also in Britain, committed suicide after several attempts. "She just became so distressed about my father, she just couldn't take it. It was absolutely intolerable and we were powerless to stop her because she just found the whole thing too devastating. I think that happened to a lot of displaced people. It was very shocking. I had to tell my younger brother. There was the funeral. I had to tell my father when he got out of Iran years later." She trained as a psychotherapist before founding her first children's charity, The Place 2 Be, in her early 20s, and set up Kids Company in south London in 1996.

I ask if she feels she has made sacrifices because of her work. She smiles. "No emotional sacrifices, because I have absolutely lived my dream. I would like is a bit more time to myself and less of a burden in terms of the fundraising – it's humiliating to have to constantly beg for money. I've had partners, but I don't have a need to have a family. It would be a bad idea for someone like me. When I was 18, I remember deciding it was either going to be my own family, or the vocation. I chose the vocation, and I never regretted it."

As far as I can tell, the only time she takes for herself are the few hours she spends swimming. She eats all her meals at Kids Company, and rarely socialises beyond fundraising parties. "I took all the periphery stuff in my life out," she says. "If you come to my flat, there's nothing in there. When I went to my solicitor to do my will, he was laughing at me saying, 'You've got nothing, what are you writing a will for?' It's true."

How long will she stay with Kids Company? "I will do it up to a point where my physical existence can't sustain it, and then someone else will take it a bit further," she says. "It really is about bringing about a systemic transformation in how we care for young people. I want to see the political change, and I haven't finished the job. And maybe I won't. All I can tell you is that the day I'm on my deathbed, I will be genuinely happy with the way my life panned out."

Mind the Child by Camila Batmanghelidjh and children from Kids Company is published by Penguin on 7 March. Buy it for £4 from guardianbookshop.co.uk